The Income-tax Officer, Amritsar. V. M/s. Puri Rice Mills, Amritsar.

ITA 297/ASR/2011

• Counselvise Citation: 29720914 RSA 2011
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-03-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 19-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Sham transactions
• Section: 131; 145

Judgement Text

ITA NO.297(ASR)/2011 ASSESSMENT YEAR 2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO. 297(ASR)/2011 ASSESSMENT YEAR:2008-09 PAN; AABFP5602N THE INCOME-TAX OFFICER, VS. M/S. PURI RICE MILLS, WARD 3(3), AMRITSAR. AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. TARSEM LAL, DR RESPONDENT BY: SH. ANIL AGGARWAL, ADV. DATE OF HEARING :05/03/2012 DATE OF PRONOUNCEMENT:07/03/2012 ORDER PERBENCH; THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER O F THE CIT(A), AMRITSAR, DATED 28.03.2011 FOR THE ASSESSMENT YEAR 2008-09. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), AMRITSAR, WAS NOT JUSTIFIED IN LAW AND ON THE FACTS IN DELETING THE ADDITION OF RS.54,82,655/- MADE BY THE A.O. ON ACCOUNT OF OVER INVOICING OF PURCHASE FROM M/S. A.K. RICE & FL OUR MILLS, ITA NO.297(ASR)/2011 2 FEROZEPUR IN SPITE OF THE FACT THAT NEITHER THE PAR TY IS FOUND AVAILABLE AT THE GIVEN ADDRESS NOR IT WAS PRODUCED BY THE ASSESSEE FOR VERIFICATION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), AMRITSAR, ERRED IN LAW IN ADMITTING ADDITIONAL EVID ENCE FILED BY THE ASSESSEE IN THE FORM OF BILLS OF PURCHASE MADE BY SOME OTHER PARTIES, WHICH OTHERWISE ARE NOT RELEVANT TO THE FACTS OF THE CASE, IN VIOLATION OF RULE 46A OF THE INCOME TAX RU LE, 1962. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), AMRITSAR, HAS FURTHER FAILED TO APPRECIATE THAT THE ADDITION ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE HAS RIGH TLY BEEN MADE BY THE AO WITHOUT INVOKING THE PROVISIONS OF SECTIO N 145 OF THE INCOME-TAX ACT, 1961. 3. THE BRIEF FACTS OF CASE ARE THAT THE ASSESSEE IS A RICE SHELLER AND DERIVES BUSINESS INCOME FROM TRADING IN PADDY/RICE ON WHOLE SALE BASIS. IT WAS OBSERVED BY THE A.O. THAT THE ENTIRE QUANTITY OF RI CE BASMATI OF 10508.78 QTL. WAS SOLD DURING THE YEAR FOR RS.3,64,28,447/- WHIC H RESULTED INTO LOSS OF RS.60,12,897/-. ON NON-COMPLIANCE BY ONE OF THE PA RTIES, M/S. A.K. RICE & FLOUR MILLS, FEROZEPUR, PURCHASE-VERIFICATION WAS C ONDUCTED THROUGH ISSUING COMMISSION U/S 131(1)(D) DATED 4.11.2010 TO THE I.T .O. WARD 3(1), FEROZEPUR, WHO IN TURN ON THE BASIS OF ON THE SPORT & LOCAL INQUIRIES GOT CONDUCTED THROUGH HIS INSPECTOR HAS INTIMATED THAT: SH. RAMJAS DEMRA, INSPECTOR VIDE HIS REPORT DT. 10. 11.2010 HAS REPORTED THAT HE VISITED MANDI GUR HARSAHAI AND TRI ED TO LOCATE M/S. A.K. RICE & FLOUR MILLS AT MOHAN KE ROAD, GUR HAR S AHAI BUT NO FACTORY/RICE MILL/FLOUR MILL OR ANY SHOP UNDER THE NAME & STULE M/S. A.K. RICE & FLOUR MILLS EXISTS AT THE GIVEN ADDRESS I.E. MOHAN KE ROAD, GUR HAR SAHAI. INQUIRIES WERE ALSO MADE FROM THE SHOPKEEPERS ITA NO.297(ASR)/2011 3 OF THE AREA BUT NO BUSINESS PREMISES OF THE ABOVE C ONCERN COULD BE LOCATED. IN THE ASSESSMENT ORDER, IT HAS BEEN STATED BY GIVI NG BILL-WISE DETAILED BREAK- UP OF PURCHASES MADE BY THE APPELLANT FIRM FROM THE ABOVE NAMED PARTY, M/S. A.K. RICE & FLOUR MILLS, FEROZEUR THAT TOTAL A NNUAL PURCHASES AMOUNTED TO RS.2,41,70,000/- (ALMOST 60% OF THE TOT AL PURCHASES). WHEREAS, THE ASSESSEE EXPLAINED THAT IT WAS AFTERWARDS LEARN ED BY IT THAT THE FEROZEPUR PARTY AFTER INCURRING AND SUFFERING HEAVY LOSSES HA S LEFT THE BUSINESS WITHOUT LEAVING THEIR WHEREABOUTS. HOWEVER, ON FINDING THE FACT THAT OUT OF THE ABOVE MENTIONED PURCHASES EFFECTED @ FROM RS.5500 TO RS.5 800/-, THE APPELLANT FIRM HAS EFFECTED SALES OF BASMATI @ RS.4000/- PER QTL. TO M/S. PARBIR FOOD STUFF FACTORY ON 8.12.2007WHEREAS ON THE SAME DATE, SIMILAR SALES WERE MADE TO M/S. SADHU SINGH GURDIP SINGH @ RS.4326/- P ER QTL. AND ACCORDING TO A.O., THE ASSESSEE HAS ADOPTED THIS DEVICE WITH THE MOTIVE TO REDUCE THE PROFIT EARNED FROM OTHER PRODUCTS LIKE DEALINGS IN RICE-PARMAL AND PADDY AND FOR THIS PURPOSE, THE A.O. REQUIRED THE ASSESSEE FI RM TO PRODUCE THE ABOVE MENTIONED SELLER OF FEROZEPUR. IN RESPONSE TO THE A .O.S QUERY, THE APPELLANT FILED WRITTEN SUBMISSIONS DATED 21.12.2010 THAT IN ORDER TO EXECUTE THE FORWARD SALE AT THE AGREED RATE THROUGH THE INTERME DIATOR/BROKER, IT HAS TO EFFECT PURCHASES BY LIFTING THE GOODS AT HIGHER RAT E FROM OUTSIDE PARTIES DUE TO NON-AVAILABILITY OF SUCH GOODS IN THE LOCAL MARK ET UNDER COMPELLING ITA NO.297(ASR)/2011 4 CIRCUMSTANCES. BUT IT IS ALLEGED BY THE A.O. THAT T HE ASSESSEE FIRM HAS INDULGED IN RECORDING THE PURCHASES BY OVER-INVOICI NG THE RATES. FOR DETERMINING THE PREVALENT OPEN MARKET PURCHASE PRIC E OF BASMATI, THE A.O. OPTED TO CITE A COMPARABLE CASE OF M/S. SAWARAJ OVE RSEAS, WHO ARE STATED TO HAVE EFFECTED SUCH BASMATI IN THE MONTH OF NOVEMBER , 2007 @ RS.3664.42. HOWEVER, THE A.O. FOUND THAT THE ASSESSEE FIRM HAS MADE PURCHASES OF RICE BASMATI FROM M/S. A.K. RICE & FLOUR MILLS ON 26 AND 27.9.2007 @ 4200/- PER QTL. WHEREAS IT HAS EFFECTED SALES OF THE SAME PRODUCT TO M/S. PARBIR FOOD STUFF FACTORY @ RS.3846/- PER QTL. BY QUOTING PUR CHASES AT HIGHER RATES ALMOST @ RS.5500/- PER QTL. FROM THE ABOVE NAMED FE ROZEPUR PARTY VIS--VIS SALES TO THREE PROMINENT SELLERS (I) M/S. SADHU SIN GH GURDIP SINGH, ASR @ 4326.92 PER QTL. (II)M/S. MERCHANT OVERSEAS, AMRITS AR @ RS.3846/- PER QTL. AND (III) M/S. PARBIR FOOD STUFF FACTORY @ RS.3846/ - PER QTL., TOTAL LOSS OF RS.54,82,655/- HAS BEEN WORKED OUT WHICH ACCORDING TO THE A.O. IS ATTRIBUTED TO THE OVER-INVOICED PURCHASES. BY DISAL LOWING THE ABOVE LOSS OF RS.54,82,655/- FROM THE ASSESSEES CLAIM OF TOTAL L OSS OF RS.60,12,897/-, HE HAS MADE THE ADDITION OF RS.54,82,655/- . 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED ADDITI ONAL EVIDENCES IN THE FORM OF PURCHASE BILLS OF VARIOUS DATES FROM VARIOU S LOCAL RICE MERCHANTS ESTABLISHING THE PREVALENT PURCHASE PRICE IN THE LO CAL MARKET RANGING FROM ITA NO.297(ASR)/2011 5 RS.5500/- TO 6000/- AS WELL AS SALE BILL NO.1822 DA TED 8.11.2007 SHOWING THE PREVALENT SALE RATE RANGING FROM RS.5000/- TO RS.5 500/-. THE A.O. HAD FURNISHED REMAND REPORT DATED 11.3.2011 WHICH WAS C ONFRONTED TO THE ASSESSEE. THE ASSESSEE HAS ALSO FILED THE COUNTER S UBMISSIONS VIDE LETTER DATED 21.03.2011. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED WRITTEN SUBMISSIONS DATED 23.2.2011 BEFORE THE CIT(A) IN SU PPORT OF HIS ARGUMENTS AND THE GROUNDS RAISED BEFORE THE CIT(A). THE LD. C IT(A), VIDE PARA 6 OF HIS ORDER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE REMAND REPORT OF THE A.O., OBSERVED THAT AOS FINDINGS ARE ONE SIDE APPROACH WITHOUT MAKING COMPLETE INQUIRY. THE ASSESSEE HAD MADE THE FORWARD /FUTURE DEALINGS WHICH ARE GENERALLY UNDERGONE IN SUCH LINE OF BUSINESS. W HEN THE FEROZEPUR PARTY IS STATED TO HAVE LEFT THE BUSINESS WITHOUT LEAVING ITS WHEREABOUTS AND ON THE OTHER HAND, THE AO HAD ALLOWED THE LOSS CLAIMED IN SIMILAR MANNER IN THE SAME PRODUCT FROM OTHER PARTIES. THE AO WAS NOT JUS TIFIED WITHOUT INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT IN MAKING THE ADDITION OF RS.54,82,655/-. ACCORDINGLY, THE LD. CIT(A) DELETED THE ADDITION, SO MADE BY THE A.O. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LD. DR, SH. TARSEM LAL, HEAVILY RELIED UPON THE ORDER OF THE A.O. AND ARGUED THAT THE PAYMENT THROUGH BANKING CHANNELS IS NOT A CONCLUSIVE ITA NO.297(ASR)/2011 6 EVIDENCE OF THE REAL TRANSACTIONS. THE ASSESSEE HAS NOT PRODUCED THE PARTIES FOR VERIFICATION. THE ONUS LIES UPON THE ASSESSEE T O PRODUCE THE PARTIES WHEN IT IS NOT FOUND AT THE ADDRESSES GIVEN BY THE ASSES SEE. MOREOVER, THE SALES MADE BY THE ASSESSEE ON THE SAME DATE HAVE BEEN STA TED TO BE ON VERBAL AGREEMENTS AND THE COPIES OF THE ASSOCIATION FOR SH OWING IT AS A GENERAL TREND IS NOT A CONCLUSIVE EVIDENCE OF THE AGREEMENT MADE FOR FORWARD/FUTURE DEALS. THE TRANSACTIONS ARE CLEAR CUT SHAM TRANSACT IONS AND, THEREFORE, THE APPEAL OF THE REVENUE SHOULD BE ALLOWED. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE, SH. ANIL AGGARWAL, ADVOCATE, HEAVILY RELIED UPON THE ORDER OF THE CIT( A). 7. ON HEARING BOTH THE PARTIES AND ON THE BASIS OF MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THE ASSESSEE HAD MA DE THE PURCHASES AT THE HIGHER RATES AND SOLD THE SAME AT THE LOWER RATES. THE OBJECTION OF THE REVENUE MAINLY WAS THAT THE PURCHASES MADE FROM M/S . A.K. RICE & FLOUR MILLS, FEROZEPUR ARE SHAM TRANSACTIONS ALONGWITH TH E SALES MADE AT LOWER RATE TO THE PARTY WHICH IS ALSO A SHAM TRANSACTION. AS REGARDS PURCHASES MADE FROM M/S. A.K. RICE & FLOUR MILLS, FEROZEPUR, THE PARTY WAS NOT AVAILABLE AT A GIVEN ADDRESS IS NOT A DISPUTED FACT . IT WAS SUBMITTED THAT THE PARTY HAS LEFT THE BUSINESS PLACE AFTER INCURRING H EAVY LOSSES. IF IT IS SO, HOW THE PARTY WHO HAD LEFT THE BUSINESS PLACE CAN BE PR ODUCED BY THE ASSESSEE. ITA NO.297(ASR)/2011 7 EVEN IF THE EFFORTS ARE NOT MADE TO TRACE THE PARTY , IT IS FOR THE REVENUE TO ISSUE SUMMONS UNDER SECTION 131 OF THE ACT AND IF I T IS NOT TRACEABLE, EVEN THEN AN ADVERSE VIEW CANNOT BE TAKEN AGAINST THE AS SESSEE AT THE FIRST INSTANCE. THE DEPARTMENT HAS TO FOLLOW OTHER METHOD S TO FIND OUT THE NATURE OF THE TRANSACTION, ITS GENUINENESS ETC. IN THE PRE SENT CASE, OPTION BEFORE THE A.O. WAS TO VERIFY FROM THE BANKS OR OTHER AGENCIES FOR WHICH THE DETAILS WERE MADE AVAILABLE TO HIM. THE AO FOR THE REASONS BEST KNOWN TO HIM CHOSE NOT TO ADOPT THIS PROCEDURE OF VERIFYING THE GENUINENESS OF THE TRANSACTION. THE ASSESSEE HAD MADE THE PURCHASES AN D ACCORDINGLY MADE THE PAYMENTS THROUGH A/C PAYEE CHEQUES, IS NOT UNDER DI SPUTE. THE PURCHASES MADE HAVE BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUN T AND SALES HAVING BEEN MADE. THE A.O. HAS NOT REJECTED THE BOOKS OF ACCOUN T AND ACCORDINGLY NO APPLICATION OF SECTION 145(3) HAS BEEN MADE. THE A SSESSEE HAVING DECLARED BETTER GROSS PROFIT AS COMPARED TO IMMEDIATE PRECED ING YEAR IS ALSO NOT UNDER DISPUTE. AS REGARDS THE SALES, FOR WHICH THE VERBAL AGREEMENTS HAD BEEN MADE, THE GENERAL PREVALENT MARKET RATE HAD BE EN SUBMITTED THROUGH LETTERS OF ASSOCIATION, WHICH HAS NOT BEEN PROVED T O BE FALSE BY THE AO IN THE REMAND REPORT. THEREFORE, IN THE CIRCUMSTANCES AND FACTS OF THE CASE AND OUR VIEW HEREINABOVE, THE A.O. WAS NOT JUSTIFIED IN MA KING ANY ADDITION ON THIS ITA NO.297(ASR)/2011 8 COUNT AND ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS, ALL THE GROUNDS OF REVENUE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.297(ASR)/2011 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7TH MARCH, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 7TH MARCH , 2012 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE:M/S. PURI RICE MILLS, AMRITSAR. 2. THE ITO, WARD 3(3), AMRITSAR. 3. THE CIT(A), ASR. 4. THE CIT, ASR. 5. THE SR DR, ITAT, ASR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR.